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Greece launches debt buyback amid eurozone scrutiny

Piles of garbage outside a bank branch in Thessaloniki. Greece launched an operation to buy back privately-held debt at a big discount, with eurozone finance ministers in Brussels studying the terms on offer alongside plans to bail out Cyprus too.

Greece launched an operation on Monday to buy back privately-held debt at a big discount, with eurozone finance ministers in Brussels studying the terms on offer alongside plans to bail out Cyprus too.

A vital part of its repackaged rescue plan aimed at slashing the country's heavy debt load, ministers meeting for the fourth time in three weeks displayed confidence that the prerequisite for a resumption of long-blocked loans would deliver.

Asked if the bid would work, given a deadline of December 13 to assess the take-up of what amounts to a semi write-off by mainly Greek financial institutions, Luxembourg's Luc Frieden said: "I assume so."

But, he added: "I dont know of any Plan B" if the buyback plan should fall short.

"I'm not especially worried, I believe the sums have been done in a realistic manner," said French Finance Minister Pierre Moscovici.

Greece's national debt agency PDMA said it would offer to buy sovereign debt back from private investors on a voluntary basis.

The operation is a condition for Greece to receive a crucial instalment of bailout funds from the European Union (EU) and International Monetary Fund (IMF).

The meeting on December 13 is intended to clear payments Athens needs to avoid bankruptcy, after the EU and IMF agreed in principle last week to release 43.7 billion euros, much of which had been held up since June.

The buyback concerns Greek sovereign bonds with a face value of 62.3 billion euros ($81.3 billion), with participants to receive between 32 and 40 percent of the bond's face value in the form of six-month bills issued by the EU's temporary rescue fund, the EFSF.

Analysts estimate that the buyback could eliminate the country's debt by 20 billion euros, but there are some concerns investors may not participate in large numbers.

Creditors hope Greece's debt can be brought back to 124 percent of gross domestic product by 2020, from an expected 190 percent next year.

The IMF has indicated that it wants to wait until a successful buyback takes place before releasing its portion of the rescue loans.

In Brussels, finance ministers were also to review a draft agreement on about 17 billion euros in aid for Cyprus drawn from EU and IMF funds through loans not expected until sometime in 2013.

Preparations for Spain to recapitalise its banks using eurozone loans will also be checked, with disbursement there expected fairly quickly.

On Tuesday, when the eurozone ministers are joined by peers from the other 10 EU members, they are set to talk about policing the banking sector more effectively, but only gradually from September 2013.

Proposed new safeguards are part of wider moves towards fuller economic and political integration deemed necessary to break the vicious circle between government and bank debt that has brought the European economy to a standstill.

But draft frameworks for the new regime with the European Central Bank at its apex have met with opposition particularly in the non-euro global financial centre of the City of London.

Tensions have increased not least because the British government in London believes German banks -- especially smaller ones -- should be subjected to more stringent checks than likely under an emerging compromise.

"I hope, for all I am not certain, that we will be able to reach a common position," said Germany's Finance Minister Wolfgang Schaeuble on arrival for the evening talks.

A key subject involves voting rights in cases where disputes arise between the ECB and the London-based European Banking Authority, itself a recent creation meant to coordinate action by national watchdogs including those from non-euro countries.